INSUBCONTINENT EXCLUSIVE:
trillion portfolio accumulated through a series of crisis-fighting stimulus programs known as quantitative easing
investments created vast excess bank reserves
With all that money in hand, firms had far less need to borrow from each other in the federal funds market to satisfy regulatory and reserve
requirements.
When the unwind begins to pinch, traders are likely to see a rise in volumes within that market from the current levels of
about $60 billion per day
Banks increasingly will need to seek out overnight funding to back their deposits or avoid potential overdrafts, according to Alex Roever,
the Federal Home Loan Banks, a system that provides funding to both large and small institutions to support community investment and housing
financing.
Firms with access to FHLB advance loans, or advances, can borrow against their mortgage holdings at rates well below the
three-month London interbank offered rate, and use the funds to buy top-tier high-quality liquid assets to meet their capital ratios.
The
home loan banks issued about $708 billion of advances this year as of the end of September, with more than half maturing in less than one
year, and a weighted-average rate of 2.25%, FHLB data show
As reserves become more scarce, the attractive rates and regulatory benefits should spur the FHLBs to issue more short-term advances,
drawdown, bank-reserve balances have fallen by about $470 billion, with international institutions accounting for about half of the
During the span, outstanding foreign financial commercial paper reached a record $314 billion.
